With few exceptions, Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT) should avoid investments that may generate unrelated business taxable income (UBTI). Certain types of investments can be deemed to create debt-financed property in the nature of "acquisition indebtedness" which gives rise to unrelated business taxable income (UBTI). The existence of UBTI can cause the trust to lose its exemption for any year in which it has UBTI. In that case, the CRT will be taxed as a complex trust under IRC §661, but will not lose its qualification as a CRT. See Private Letter Ruling 9703027.

Here are some examples of investments that either generate UBTI or should be examined carefully to determine whether they generate UBTI:


Margin Accounts
Partnership Units-including certain publicly traded partnerships
Limited Liability Company Interests
Real Estate Investment Trusts (REIT)
Hedge Funds (i.e., Domestic Hedge Funds, etc.)
Loans to CRT and Charitable Lead Trust
Encumbered Real Estate

Of course, this is by no means an exhaustive list. Whenever there is the slightest question about whether an investment may generate UBTI, please consult your legal, tax and investment advisors.